Despite an already strong run, J.Pond Precision Technology Co., Ltd. (SZSE:301326) shares have been powering on, with a gain of 63% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 79% in the last year.

Following the firm bounce in price, J.Pond Precision Technology may be sending bearish signals at the moment with its price-to-sales (or "P/S") ratio of 6.2x, since almost half of all companies in the Electronic in China have P/S ratios under 4.2x and even P/S lower than 2x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

How Has J.Pond Precision Technology Performed Recently?

It looks like revenue growth has deserted J.Pond Precision Technology recently, which is not something to boast about. It might be that many are expecting an improvement to the uninspiring revenue performance over the coming period, which has kept the P/S from collapsing. If not, then existing shareholders may be a little nervous about the viability of the share price.

How Is J.Pond Precision Technology's Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like J.Pond Precision Technology's to be considered reasonable.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with revenue down 25% overall from three years ago. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 26% shows it's an unpleasant look.

With this in mind, we find it worrying that J.Pond Precision Technology's P/S exceeds that of its industry peers. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What Does J.Pond Precision Technology's P/S Mean For Investors?

The large bounce in J.Pond Precision Technology's shares has lifted the company's P/S handsomely. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that J.Pond Precision Technology currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

And what about other risks? Every company has them, and we've spotted 3 warning signs for J.Pond Precision Technology you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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